A recent legal dispute over token airdrops has garnered support from prominent cryptocurrency lobbying organizations, including the Blockchain Association and the Cryptocurrency Innovation Council.
These Washington, D.C.-based lobbying groups have provided “Friend briefSupporting clothing brand Beba in its lawsuit against the US Securities and Exchange Commission (SEC).
Details of the ongoing legal battle against the SEC
The case filed in March seeks preemptive clarification from the SEC regarding how token airdrops comply with U.S. securities laws.
Beba and the DeFi Education Fund argue that airdrops fall outside the scope of the “Howey Test,” a legal standard that determines whether a transaction qualifies as an investment contract.
By this measure, plaintiffs assert that airdrops lack “investment money,” as tokens are typically distributed for free with no expectation of profit.
Lawyers for the Blockchain Association and the Cryptocurrency Council highlighted this point in their filing, arguing that the SEC’s regulation of token airdrops constitutes an excessive overreach of the agency’s authority.
1/ today, @BlockchainAssn & @crypto_council File a friend note at @fund_defi & @BebaCollection v. Securities and Exchange Commission. Does airdrop mean there is an investment of money even if it is free? SEC says yes; Prosecutors say no. The plaintiffs are right. We explain why.https://t.co/9uVUn23PVN pic.twitter.com/OTIsAEJwM0
– Marissa Tashman Coppel (MTCoppel) October 28, 2024
Seeking clarity on cryptocurrency token drops
Token airdrops have emerged as a prominent area of contention in the cryptocurrency industry. SEC Chairman Gary Gensler has signaled his agency’s intent to regulate nearly all digital assets under existing securities laws.
The SEC’s approach has faced significant opposition, with many cryptocurrency companies claiming that the agency’s actions conflict with the Administrative Procedure Act (APA), which outlines the process for federal agencies to create and enforce rules.
According to BBA, Coinbase, Binance, and other plaintiffs, the SEC’s enforcement-driven strategy “lacks sufficient legislative support.”
In their court filing, the Blockchain Association and Cryptocurrency Council claimed that the SEC’s interpretation of the Howey Test failed to take into account critical distinctions between traditional financial instruments and digital assets.
Specifically, they emphasize that airdrops do not involve direct investment, which they claim negates the applicability of securities laws in this context.
Marissa Tashman Koppel, head of legal at the Blockchain Association, noted that the lack of “common enterprise” adds to the challenges of the SEC’s approach, as recipients and issuers of airdrops often do not share a unified business interest.
However, the US Securities and Exchange Commission has already moved on to reject The lawsuit, asserting that it has the authority to regulate crypto assets as securities.
The proposal comes as the agency continues to take regulatory action against high-profile digital asset companies, creating a climate of regulatory uncertainty that has prompted many companies to reconsider their operations in the country.
The Blockchain Association and Crypto Council urge the court to do so SEC dismissal motion deniedCalling for regulatory clarity to avoid “stifling innovation” within the US cryptocurrency industry.
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